be used) to make appropriate queries to management.
As a further means by which to mitigate the risks associated with their lawyers serving on boards (and/or providing pro bono legal advice), it is not uncommon for law firms to purchase additional insurance that protects us from liability that may be imposed upon us.
As a means by which to mitigate risk, many firm policies prohibit lawyers from providing legal advice while serving on boards. This can be at odds with the very reason why we have been asked to serve on the board of a non-profit
Insurance and Indemnification
Directors of non-profits may be indemnified by the corporation for actions taken/decisions made while serving on the board and, in some cases, after the director has resigned, for occurrences resulting from decisions made while still a director. The most common way in which non-profits provide their directors with such indemnification is through the purchase of Directors’ and Officers’ Liability Insurance (“D&O Insurance”). Usually as a tool to attract talent to the board, a well-governed non-profit will bake into its by-laws the requirement to purchase D&O Insurance. Generally, D&O Insurance covers a director for damages and losses incurred as a result of actions taken in good faith and in the best interests of the corporation, taking into consideration the applicable standard of care. Usually, D&O Insurance will cover litigation and defence costs up to a prescribed amount. D&O Insurance will not cover:
-- pending or prior claims;
-- fraud or criminal activity;
-- claims covered under other kinds of insurance policies;
-- directors who have acted outside the scope of their authority.
Before accepting a position on the board of a non-profit, it is prudent that we consider whether the organization has purchased D&O Insurance.
Conclusion
As lawyers, serving on the board of a non-profit can be tricky. While we may be passionate about the cause or have some other reason for being tempted to say ‘yes’, before for we serve, it is important to understand that our role is to be that of a director, not counsel to the organization. Generally, if the organization is a charity, we need to be careful that we (or a related party) are not being paid for our services (legal or otherwise) as a result of our position on the board. We must still, however, employ our expertise and serve the organization by calling upon management to consider any notable legal issues. This is all a very fine balancing act, one that we must be prepared to engage in as lawyers should we choose to serve on a non-profit board.
Natasha Smith is a member of the Social Impact Group at Miller Thomson, with a practice dedicated to providing practical legal advice to charities and non-profits, exclusively. Specifically, Natasha assists these entities with a variety of matters including corporate governance, tax compliance, re-organizations, mergers, revenue generation, and social finance.
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20 BLawyerisH/July, 2017